Monro stock stumbles on Q2 earnings report

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Monro Inc. shares sank more than 13 percent on Thursday following the Rochester company’s second-quarter earnings announcement. Company stock (Nasdaq: MNRO) was trading at $70.05 in heavy midday trading, down more than $10 from Wednesday’s close at $80.55.

For the quarter ended Sept. 28, the automotive undercar repair company reported a more than 5 percent increase in revenues to $324.1 million, compared with $307.1 million in the year-ago quarter.

However, net income for the quarter fell to $20.3 million from $21.8 million in the same period last year. On a per-share basis, earnings fell to 60 cents from 65 cents in the second quarter last year.

Earnings missed Street estimates by 11 cents, while sales missed by nearly $6 million.

“We are disappointed in our second-quarter results, which were significantly impacted by gross margin pressures related to higher than expected tire and labor costs,” Monro President and CEO Brett Ponton said in a statement. “However, we believe the second quarter represents a low watermark for us this year, as we quickly took action to rectify our margin pressures in the near-term and are implementing initiatives to drive margin expansion moving forward.”

As a result, Monro lowered its full-year guidance to sales of $1.295 billion to $1.315 billion, with a 1 to 2 percent comparable store sales increase. The company expects 2020 diluted earnings per share in the range of $2.45 to $2.55, compared with $2.37 per share in fiscal 2019.

Comparable store sales—or sales at stores open at least one year—were flat for the quarter. Gross margin fell to 37.7 percent from 39.1 percent a year ago.

Monro also on Thursday said it had signed an agreement to acquire 18 stores, including 14 in Nevada and four in Idaho, both new states for Monro. The locations are expected to add some $20 million in sales annually, representing a sales mix of 75 percent service and 25 percent tires.

The company’s aggressive growth-through-acquisition strategy continues with the acquisition of nine stores in California, expanding its reach in the state. The nine stores are expected to add $25 million in annualized sales, with a sales mix of 55 percent service and 45 percent tires.

Monro’s acquisitions in Louisiana were completed during the second quarter, officials said.

“Positively, we substantially completed the re-image of approximately 120 stores across a number of markets, representing a significant step forward in our store refresh program,” Ponton said. “This initiative is a critical component of our Monro.Forward strategy as it underpins our ability to drive sustainable growth, as evidenced by the double-digit increase in comparable store sales our pilot stores have generated following the completion of their re-image.”

Ponton said the company remains committed to “executing on attractive acquisition opportunities,” as seen with its two most recent purchases on the West Coast.

Headquartered in Rochester, Monro operates a chain of more than 1,250 stores, nearly 100 franchised locations, eight wholesale locations and three retread facilities in 30 states nationwide. The company was founded by Charles August in 1957 as a Midas Muffler franchise.

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